With Charles Schwab announcing it will acquire TD Ameritrade for $26 billion, most analysts will celebrate the massive scale of the merger, but the all-stock transaction suggests that the deal may not be as rosy as it seems—and could well be a defensive play in response to an industry roiled by disruption.
Many Wall Street analysts think the deal could give Schwab an edge in the price war that has roiled the industry in recent years, since it creates a giant wealth manager withThe agreement is expected to close in the second half of 2020 and will see TD Ameritrade stockholders receive 1.
If Schwab had partly paid in cash or debt, for example, its current shareholders would own a higher percentage of the merged company, while TD shareholders would get a payout and own a smaller percentage. “Would Schwab shareholders be better off if TD was bought with cash or debt? They probably would have been,” says Morningstar analyst Michael Wong. “That said, I’m not sure if TD Bank or Ameritrade would have agreed to a $26 billion valuation—they may have asked for a higher price.”
“If you’re in an environment where many revenue streams are under pressure, one of the only ways to prop up your earnings is to cut expenses, and the biggest way to do that is a merger,” Wong says, while also pointing out that the all-stock transaction format means that long-term synergies from the acquisition will be fairly shared among stockholders from both companies.
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